People walk in front of the New York Stock Exchange on July 30, 2014 in New York City. / John Moore, Getty Images

by David Carrig and Gary Strauss, USA TODAY

by David Carrig and Gary Strauss, USA TODAY

Financial markets went into a tailspin Thursday after Argentina defaulted on its debt, raising fears among skittish investors already fretting about weak corporate earnings growth, rising interest rates and an aging bull market.

Argentina's blue chip Merval Index was among the biggest losers, sinking 8.4% - the equivalent of a 1,400-point drop in the Dow Jones Industrial Average.

The Dow sank 317.06 points to 16,563.30, erasing 2014's gains. The 1.9% drop was the blue chip barometer's third-biggest daily drop of the year and the worst since a 267-point loss on April 10. Selling intensified as selling momentum picked up in afternoon trading.

Broader averages were also hit hard. The Standard & Poor's 500 fell 2% to 1930.67, a six-week low. The Nasdaq lost 2.1% to 4369.77, and the Russell 2000 was off 2.3% to 1120.

With the losses, a five-month string of Dow and S&P 500 Index gains will end with July's last trading session.

In a bitter fight with U.S. hedge fund Elliott Management, a breakdown in talks between Argentina and U.S. creditors late Wednesday over a missed debt interest payment sent the country into default.

But global markets were under renewed pressure over economic growth and weakening corporate earnings and in Europe, the potential impact of harsher U.S. and European sanctions against Russia.

Quarterly corporate reports also rocked the broad market. Dow component ExxonMobil dropped 4.2% to $98.94. The energy giant bested second-quarter expectations with a 28% gain in net income, but said oil and gas production fell 5.7% to its lowest levels since 2009.

Some investors believe Argentina's woes provided an excuse to sell stocks before a long-awaited correction causes more damage. The Dow has gone 33 months without a correction of at least 10%. Since World War II, there have been sell-offs of at least 10% once every 20 months.

Liz Ann Sonders, market strategist for Charles Schwab, told CNBC that Argentina's woes weren't the prime reason for Thursday's downdraft. Bullish sentiment has somewhat weakened due to weak European economies. Given the strength in the U.S. economy, there are also fears that the Federal Reserve will raise interest rates sooner than some expected. After protracted gains, stocks could be due for a correction, but the market is not overvalued, Sonders said.

Thursday's stock slide comes a day after the Commerce Department reported second-quarter growth rose at a seasonally adjusted 4% rate, exceeding consensus expectations. But that fueled renewed fears of higher interest rates, which could clip stocks.

"Good news is getting to be bad news again," says Jack Ablin, chief investment officer at BMO Private Bank. "The GDP report is obviously good news, so why are stocks off? Because people are wondering when the party will come to an end."